Lyft Valuation.

Dear Reader,


Lyft Inc., the car sharing company, went public two weeks ago and its stock slumped about 6% since then.

Is Lyft fairly valued?

No. According to my opinion, Lyft's fair valuation is about 15 bln. USD. Lyft's current market capitalization is 21.28 bln. USD. So Lyft is about 50% overvalued.

Why? First, because it is hugely unprofitable. Lyft lost 911 mln. USD on 2.157 bln. USD of sales or negative net profit margin of -40%. Wall Street research analysts seem to be counting that Lyft's year on year sales growth of about 50% will lift the company to profitability. But sales grew even faster two years ago and the company only expanded its losses. Lyft employs a classic dumping strategy - keeps low prices until it conquers a large market share and then Lyft will raise prices, much like Netflix did. The problem with such a strategy is that someone has to finance Lyft's revenue growth until the market share is deemed large enough to start raising prices and reach profitability. Now public shareholders are financing Lyft's growth. Many former star technology companies like Groupon, Zynga, Snapchat, GoPro,Fitbit etc. went public at high valuations and high hopes, but later failed to live up to those high aspirations and their stock prices fell significantly from the IPO public prices. Wall Street research analysts and Wall Street as a whole again sold the story that the aforementioned companies will be the next big IT disruptors, but things did not turn out so well.

Basically, I think we are in the final stages of the 10 year bull market we have been witnessing. Typically, the end of bull markets is characterised by high number of IPOs at lofty valuations. Slack, Uber, Pinterest, Palantir are waiting in the wings to go public. Lyft currently trades at an unsustainable valuation, since it is loosing a lot of money. I think companies like Lyft and Uber will survive the coming stock market fall, if they find a path to profitability in the next 4-5 years. Yes, I know Amazon Inc. was unprofitable for a long time, but it eventually makes money and its stock did fell a lot!

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich